A compensated absence is an employee absence for vacation or illness, for which the employee will be paid. When employees accrue rights to take leave with pay, the government incurs an expense and liability measured by the salary cost of the time that may be taken. Accounting Standard The accrual of annual leave in the federal government is material and needs to be recognized annually in agency accounting records and financial statements. Federal employers, therefore, shall recognize the expense and related liability for annual leave (including home leave) as it accrues. Sick leave need not be accrued unless such information is needed for budget and management purposes. The expense and related liability for annual leave shall initially be recorded at the wage rates at which the leave is earned. Use of a fringe benefit rate is also acceptable for calculating accrued annual leave. The liabilities for annual leave shall be adjusted at least annually to reflect all pay increases and unused leave balances for financial statement purposes.

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